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Coleco originally processed shoe leather, which later led to a business in leather craft kits in the 1950s. They began manufacturing plastic moulding and moved into plastic wading pools in the 1960s. The leather part of the business was then sold off.[8]

Under CEO Arnold Greenberg, the company entered the video game console business with the Telstar in 1976. Dozens of companies were introducing game systems that year after Atari's successful Pong console. Nearly all of these new games were based on General Instrument's "Pong-on-a-chip". However, General Instrument had underestimated demand, and there were severe shortages. Coleco had been one of the first to place an order, and was one of the few companies to receive an order in full. Though dedicated game consoles did not last long on the market, their early order enabled Coleco to break even.

Coleco continued to do well in electronics. They transitioned next into handheld electronic games, a market popularized by Mattel. Coleco produced two very popular lines of games, the "head to head" series of two player sports games, (Football, Baseball, Basketball, Soccer, Hockey) and the Mini-Arcade series of licensed video arcade titles such as Donkey Kong and Ms. Pac-Man. A third line of educational handhelds was also produced and included the Electronic Learning Machine, Lil Genius, Digits, and a trivia game called Quiz Wiz.[9] Launched in 1982, their first four tabletop Mini-Arcades, for Pac-Man, Galaxian, Donkey Kong, and Frogger, sold approximately three million units within a year.[10] Among these, 1.5 million units were sold for Pac-Man alone.[11][12] In 1983, they released three more Mini-Arcades: for Ms. Pac-Man, Donkey Kong Junior, and Zaxxon.[10]

The ColecoVision video game console

Coleco returned to the video game console market in 1982 with the launch of the ColecoVision. While the system was quite popular, Coleco hedged their bet on video games by introducing a line of ROM cartridges for the Atari 2600 and Intellivision. They also introduced the Coleco Gemini, a clone of the popular Atari 2600.

When the video game business began to implode in 1983, it seemed clear that video game consoles were being supplanted by home computers. Coleco's strategy was to introduce the Coleco Adam home computer, both as a stand-alone system and as an expansion module to the ColecoVision. This effort failed, in large part because Adams were often unreliable. The Adam flopped; Coleco withdrew from electronics early in 1985.[3]

Also in 1983, Coleco released the Cabbage Patch Kids series of dolls which were wildly successful.[13] Flush with success, they purchased beleaguered Selchow & Righter in 1986, manufacturers of Scrabble, Parcheesi, and Trivial Pursuit,[14] sales of which had plummeted, leaving Selchow & Righter with warehouses full of unsold games. The purchase price was $75 million. That same year, Coleco introduced an ALF plush based on the furry alien character who had his own television series at the time, as well as a talking version and a cassette-playing "Storytelling ALF" doll.[15] The combination of the purchase of Selchow & Righter, the disastrous Adam computer, and the public's waning infatuation with Cabbage Patch dolls all contributed to Coleco's financial decline. In 1988, the company filed for chapter 11 bankruptcy.[16]

The reorganized Coleco sold off all of its North American assets and outsourced thousands of jobs to foreign countries, closing plants in Amsterdam, New York and other cities.[17] In 1989, Hasbro and Canada based SLM Action Sports Inc. purchased Coleco's assets.[18]